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LEASES

12 Months Ended

May 31, 2024

6. LEASES

The Company leases its manufacturing and office space under operating leases. The principal administrative and production facility is located in Fremont, California, in a 51,289 square foot building. The Company entered into a non-cancelable operating lease agreement for its United States manufacturing and office facility, which was amended in December 2022 to extend the lease term to September 2030. The total commitments, net of tenant incentives of up to $0.3 million expected to be received by December 2024, under the modified lease are $8.6 million. The modified lease contains an option to further extend the lease for five years. The lease modification resulted in an increase in the Company’s operating lease right-of-use assets and operating lease liabilities of $5.9 million each in December 2022. The Company leases a 492 square foot sales and support office in Utting, Germany. The lease, which began on February 1, 1992 and expires on January 31, 2025, contains an automatic twelve months renewal. The Company leases a facility in the Philippines located in a 6,458 square foot building in Clark Freeport Zone, Pampanga. The lease, amended in 2023, began on November 1, 2023 and expires on June 30, 2029 with an option to renew for another three or five years at the prevailing market rate. Under the lease agreements, the Company is responsible for payments of utilities, taxes and insurance.

The Company has only operating leases for real estate including corporate offices, warehouse space and certain equipment. A lease with an initial term of 12 months or less is generally not recorded on the consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company is reasonably certain to exercise. The Company recognizes lease expense on a straight-line basis over the lease term for short-term leases that the Company does not record on its consolidated balance sheets. The Company’s operating leases have remaining lease terms of one year to six years.

The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

As of May 31, 2024, the weighted average remaining lease term for the Company’s operating leases was 6.2 years and the weighted average discount rate was 7.58%.

The Company’s operating lease cost was $1.2 million, $0.9 million, and $0.8 million for the years ended May 31, 2024, 2023, and 2022, respectively.

The following table presents supplemental cash flow information related to the Company’s operating leases:

	Year Ended May 31,
(In thousands)	2024		2023		2022

Operating cash flows paid for operating leases	$	916	$	835	$	813
Right-of-use assets obtained in exchange for operating leases liabilities	$	318	$	5,855	$	-

The following table presents the maturities of the Company’s operating lease liabilities as of May 31, 2024:

(In thousands)
Fiscal year	Operating Leases
2025	$	921
2026		1,244
2027		1,284
2028		1,316
2029		1,361
Thereafter		1,798
Total future minimum operating lease payments		7,924
Less: imputed interest		(1,727	)
Present value of operating lease liabilities	$	6,197